The ability to calculate the ROI of cloud computing is not a simple exercise, as most people would prefer to think. In order to truly understand the business value when adopting cloud computing (public, private, or hybrid), we require a complex and dynamic analysis.
Before the ROI: The Cloud Assessment
When it comes to cloud migration, there are many success stories showing how the cloud can help cut costs. Nucleus Research took a look at 70 case studies of companies adopting SaaS and found that the ROI of such services was 1.7 times greater than that of on-premises apps, largely because hosted services could offer increasing benefits over time, without a proportional increase in costs.
There are still other implementations that have not been as successful. Some of these companies that have adopted cloud services have come to regret it. According to Nucleus, 52 percent of users of cloud-based customer relationship management services were willing to consider switching vendors within six months. The reason – companies had often been sold cloud aggressively and they spent less time on research and planning.
Before calculating the ROI, companies must baseline the cost of their existing applications and determine suitability of current applications for cloud migration. The best way to do that is by conducting a cloud assessment. It is important to understand how the overall ROI can be achieved even when spending more upfront. And only after the cloud assessment is done the ROI of moving to the cloud can be calculated.
To determine the ROI of any cloud project, it’s important to understand that various factors will vary from company to company. While one business might see security as the most important consideration, another might place more weight on the speed at which you can add capacity, while others still might say that liability is the highest priority. The value of redundancy is a major factor that many organizations struggle with when transitioning to the cloud.
However, depending on the provider, the cost of building in redundancy can be expensive. For example, when considering data storage, some providers charge twice as much to fully replicate and store the data. In addition, there are architectural decisions to consider. Having two data stores separated by a long distance introduces the issue of latency when synchronizing the stores. For several applications, that latency might not matter. For other applications, this could be a major problem.
Different tools are often used to estimate the cost benefit of a cloud migration. ROI calculations are often based on the assumption that cloud computing avoids hardware/software investments and since customers only pay for the resources they use, the cost of those resources should align with the amount required. But, it’s important to understand that without the appropriate analysis, companies can adopt cloud services for all the wrong reasons, and there is a possibly of having higher costs and an inferior outcome.
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